It seems to be a given among conservatives that lower taxes will lead to more economic growth. Are conservatives talking about lowering the corporate tax rate (which are currently the highest in the world and cause multinational corporations to avoid repatriating profits), or are they speaking about lowering individual income taxes? If it’s the latter, is there any data that shows that businesses are undercapitalized due to lack of money to invest because too much is tied up in taxes? I accept that that can be true in principle, but how true is it in practice? The last I heard, American businesses were sitting on piles of cash, waiting for demand to increase. I don’t think that the wealthiest 1% are a huge source of demand. What’s the straight dope?
Taxes on the rich were much higher in the 1950’s than they are now, and there was much more economic growth back then. I say the conservatives are dead wrong on this.
It’s nonsense. But it’s also about politics. There is some ideal tax rate that maximizes the economic benefit through both the public and private sector. No one knows exactly what it is and we can’t adjust it fast enough in a constantly changing environment even if we did. Conservatives who believe the tax rate is too high now will insist that lowering taxes will produce an overall economic benefit. They could be right at the moment, but there are plenty of others who will stick to the baseless mantra and insist on lowering taxes whether or not there is an overall benefit because they only care about themselves.
This oft-repeated factoid is not clear-cut. It refers to statutory rate; more meaningful is effective rate about which “a 2011 study by the Congressional Research Service put the U.S. effective rate at 27.1 percent, slightly lower than the OECD average of 27.7 percent.”
Rembrandt graced pigment to canvas with historic skill.
But Rembrandt pales in comparison to how Republicans slather lipstick on the tax cut pig.
I genuflect, I worship at the altar of fiscal conservatism *.
But the U.S. federal deficit skyrockets under Democrats and Republicans alike.
The cliché is"
Democrats tax and spend
Republicans borrow and spend
BUT !!
The Republican mantra to which the zombies stagger in cadence is:
tax cuts
tax cuts
tax cuts
Tax cuts are fantabulistic!
CUT SPENDING FARTHER FIRST !!
And Republicans haven’t done that.
FORGET the tax cut gong!
How about thumping the BALANCE THE BUDGET gong for a few generations !!, until the debt is paid in full
The following excerpted from U.S. Presidential candidate Libertarian Andre Marrou’s
1992 stump speech.
As it is often quoted as a response to this: the US back then was the only industrialized power back then. Additionally, there were very many loopholes.
To the OP: as a society, one has to ask is what are the goals of the country? The way I see it: If it is to have bigger government or bureaucracy or is to have more economic freedom? The tax rate will have a direct impact on that goal. I’m all for economic growth, personally, so I would lean towards less taxes. If you raise taxes too high, then the impediment to economic growth both on a personal level and on the national level becomes insurmountable, relying more on luck than on hard work and merit to get ahead (of course this also involves a strong reliance on free markets). Conversely, one may think that we or certain people are wealthy enough already and we need to tax them more to help those not as fortunate.
Generally speaking, lowering taxes allows for more economic freedom which allows for more productivity and more opportunity for wealth to grow. It doesn’t mean that all growth will be equal. When conservatives talk about cutting taxes, they want to cut tax for all, because fundamentally, they want people to make their own decisions rather than have the government make it for them (of course others will argue that conservatives want a different style of big government, but I’m speaking of the classical argument).
The data you ask about is difficult to obtain because of tax loopholes which are still abundant in the tax code. I’m not a tax pro, but from what I remember in tax law is that some of them are shown to be heavily lobbied for (another reason for smaller government), some are logical based on GAAP, some are because of social/political engineering (these I mostly don’t mind if they’re neutral) or fairness, and some are there to stick it to an industry. You mentioned one of the companies that I work for, competition is fierce. We, just like any other business that looks to thrive, will take any tax cut we can find. Again, for reasons stated above, these loopholes exist. For one data point, we have a couple of subsidiaries that we cannot take to the next level because to fund them would be too huge a corporate tax hit, either for management to sustain or for our shareholders to tolerate. This real growth that we do not pursue because it isn’t worth the risk.
Taxes are a drag on the economy. Government spending is an accelerant. Who you tax and how you do it will affect how much of a drag taxes are on the economy. How you spend those tax dollars affects how much it accelerates the economy.
A lot of liberals ignore the first sentence and a lot of conservatives ignore the second.
Taxes don’t affect investment so much because it leaves businesses with less to invest; it reduces investment because it reduces the after tax return on those investment.
The repatriation tax keeps money from being repatriated for several reasons. One reason is that we have been giving these unrepatriated funds more and more deferral and in some cases the ability to escape taxes altogether. Now there are several ways to get companies to repatriate those funds: lower the rate so that everyone wants to take advantage of the bargain; RAISE rates so that everyone repatriates those funds before the higher rates kick in; threaten to get rid of the deferral altogether or some combination of the three.
All this effort to avoid taxes is unproductive deadweight loss. The lower the tax rates are the less incentive there is for companies to try to avoid them. Tax avoidance is money wasted from an economic view since nothing worthwhile is produced. If companies wasted less money on avoiding taxes they would have more money to invest in productive uses. Because of this high statutory rates are bad for economic growth.
This is framing. There is no one anywhere arguing for “bigger government of bureaucracy” as an end in itself. Some people argue that the government should do things (e.g. education, roads, public health, police, military) and that doing those things implicitly requires expansion of government to do it, but no one advocates “let’s make the government big and taxes high just for the hell of it” except caricatures of liberals in conservative media.
A more realistic comparison is, are the goals of the country to have a well-educated, healthy, safe population (at the cost of having a larger government role) or a lower tax burden (at the cost of social ills).
I don’t necessarily disagree with this, but as I stated, there is no real data. Even if we could magically audit every company, we would still have to understand their rational to defer tax now, whether to repatriate, how they invest, etc. We can still say with more objective certainty that tax of country A is higher than country B.
Isn’t this framing too? Btw, realistically speaking, how can we as a society accomplish these goals without creating more administration and bureaucracy? To clarify my point, I’m not a proponent of big government because of sheer size (whether in terms of people or dollars it consumes), but moreso because of lack of efficiency and accountability. Some things are the naturally the province of the government, some things should be left to individual choices.
Given the amount of loopholes and the sheer size an organization has to be to take advantage of those loopholes (e.g. offshore production, business conducted through non-US affiliates), can the study effectively call their findings an average as a whole? Adding local tax adds an average of 4%, raising the statutory rate to 39% (see taxfoundation.org). The actual rate is going to vary by company, type of services/goods provided, size of company, global reach of such company, etc. Even politifact concludes that the application of taxes is convoluted.
Tax factoids aside, these taxes “dodges” are better addressed through a flatter tax or more efficient tax process. Unfortunately, as is always the case, the law does not keep pace.
A huge chunk of the rest of the world outside the U.S. had just been blown up my a major war (World War II, maybe you have heard of it) and were rebuilding their manufacturing capabilities. During the war the U.S. had ramped up production capabilities to fight the war so we could build tons of stuff while other countries couldn’t.
So, if you want to go blow up Europe, Japan and other parts of the world again, we can probably end up in a similar situation. Now, if you don’t want to blow up a bunch of people, it may not work so well.
Of course, it has basically failed every other time that it has been tried too. The only reason it is still considered a serious approach is because of the religious fervor of its adherents (which also conveniently aligns with the economic interests of their big campaign contributors).
The balanced budget is a good idea but humans can screw up anything.
New Mexico had excess income when oil was $100 a barrel. The right wing used the balanced budget requirement to lower income taxes on the wealthy. Now oil is $50 a barrel and the state is in trouble. But, the Conservative dogma is: you can’t raise taxes in a down economy. So, they took the money out of the school budget.
Many years ago I believed humans to be rational and progress to be inevitable.
I think you’ve summed up humanity, or at least U.S. politics in one tidy paragraph here C.
I’d love to know:
do Republicans skyrocket the debt because they’re not smart enough to understand it’s not merely the absolute level of taxation that matters, but the proportion of revenue to expenditure that matters.